At the announcement of her engagement to Spain’s Crown Prince Letizia Ortiz Rocasolano wore a chic white pant suit. Within a few weeks, hundreds of European women sported the same look. Welcome to a fashion, a trend that sees clothing retailers frequently purchasing small quantities of merchandise to stay on top of emerging trends. In this world of “hot today, gauche tomorrow,” no company does fast fashion better than Zara international. Shoppers in over 70 countries are fans of Zara’s knack for bringing the latest styles from sketchbook to clothing rack at lightning speed and reasonable prices. ot replenished.
Instead they are replaced with new designs to create scarcity value-shoppers cannot be sure that designs in store one day will be available the next. Store managers track sales data with handheld computers. They can reorder hot items in less than an hour. This lets Zara know what’s selling and what’s not; when look doesn’t pan out, designers promptly put together new products. According to Dilip Patel, U. K. commercial director for lnditex, new arrivals are rushed to store sales floors still on the black plastic hangers used in shipping.
Shoppers who are in the know recognize these designs as the newest of the new; soon after, any items left over are rotated to Zara’s standard wood hangers. Inside and out, Zara’s stores are specially dressed to strengthen the brand. lnditex considers this to be of the greatest importance because that is where shoppers ultimately decide which fashions make the cut. In a faux shopping street in the basement of the company’s headquarters, stylists craft and photograph eye-catching layouts that are e-mailed every two weeks to store managers for replication.
Zara stores sit on some of the world’s glitziest shopping streets—including New York’s Fifth Avenue, near the flagship stores of leading international fashion brands— which make its reasonable prices stand out. “Inditex gives people the most up-to-date fashion at accessible prices, so it is a real alternative to high-end fashion lines,” said Luca Solca, senior research analyst with Sanford C. Bernstein in London. That is good news for Zara as many shoppers trade down from higher-priced chains. Catfights on the Catwalk Zara is not the only player in fast fashion.
Competition is fierce; but Zara’s overwhelming success (recent sales were over $13 billion) has the competition scrambling to keep up. San Francisco-based Gap, which had been the largest independent clothing retailer by revenue until Zara bumped them to second place in 2009, recently posted a 23% decline in full-year sales and had plans to open a modest 50 new stores. Only time will tell if super-chic Topshop’s entry into the American market causes a wrinkle in Zara’s success. Some fashion analysts are referring to all of this as the democratization of fashion: bringing high(eR) fashion to low(er) income shoppers.
According to James Hurley, a senior research analyst with New York-based Telsey Advisory Group LLC, big-box discount stores such as Target and Wal-Mart are emulating Zara’s ability to study emerging fashions and knock out look-a- likes in a matter of weeks. “In general:’ Hurley said, “the fashion cycle is becoming sharper and more immediately accessible. ” In Fast Fashion, Moments Matter Because style-savvy customers expect shorter and shorter delays from runway to store, Zara International employs a creative team of more than 200 professionals to help it keep up with the latest fashions.
It takes just two weeks for the company to up-date existing garments and get them into its stores; new pieces hit the market twice a week. Defying the recession with its cheap-and-chic Zara clothing chain, Zara’s parent company Inditex posted strong sales gains. Low prices and a rapid response to fashion trends are enabling it to challenge Gap, Inc. , for top ranking among global clothing vendors. The improved results highlight how Zara’s formula continues to work even in the economic downturn. The chain specializes in lightning-quick turnarounds of the latest designer trends at prices tailored to the young—about $27 an item.
Louis Vuitton fashion director Daniel Piette described Zara as “possibly the most innovative and devastating retailer in the world. ” Inditex Group shortens the time from order to arrival by utilizing a complex system of just-in-time production and inventory reporting that keeps Zara ahead. Their distribution centers can have items in European stores within 24 hours of receiving an order, and in American and Asian stores in under 48hours. “They’re a fantastic case study in terms of how they manage to get product to their stores so quick’,’ said Stacey Cartwright, CFO of Burberry Group PLC.
We are mindful of their techniques. ” lnditex’s history in fabrics manufacturing made it good business sense to internalize as many points in the supply chain as possible. Inditex controls design, production, distribution, and retail sales to optimize the flow of goods, without having to share profits with wholesalers or intermediary partners. Customers win by having access to new fashions while they’re still fresh off the runway. During a Madonna concert tour in Spain, Zara’s quick turnaround let young fans at the last show wear Madonna’s outfit from the first one.
Twice a week Zara’s finished garments are shipped to logistical centers that all simultaneously distribute products to stores worldwide. These small production batches help the company avoid the risk of oversupply. Because batches always contain new products, Zara’s stores perpetually energize their inventories. Most clothing lines are A Single Fashion Culture With a network of over 1,600 stores around the world, Zara International is Indites’s largest and most profitable brand, bringing home 77% of international sales and nearly 67% of revenues. The first Zara outlet opened shop in 1975 in La.
Coruna. It remained solely a Spanish chain until opening a store in Oporto, Portugal, in 1988. The brand reached the United States and France in 1989 and 1990 with outlets in New York and Paris, respectively. Zara went into mainland China in 2001 and expanded into India in 2009. Essential to Zara’s growth and success are lnditex’s 100 plus textile design, manufacturing, and distribution companies that employ more than 80,000 workers. The lnditex group began in 1963 when Amancio Ortega Gaona, chairman and founder of Inditex, got his start in textile manufacturing.
After a period of growth, he assimilated Zara into a new holding company, Industria de Diseno TextiI. Inditex has a tried-andtrue strategy for entering new markets: start with a handful of stores and gain a critical mass of customers. Generally, Zara is the first lnditex chain to break ground in new countries, paving the way for the group’s other brands, including Pull and Bear, Massimo Dutti, and Bershka. lnditex farms out much of its garment production to specialist companies, located on the Iberian Peninsula, which it often supplies with its own fabrics.
Although some pieces and fabrics are purchased in Asia—many of them not dyed or only partly finished—the company manufactures about half of its clothing in its hometown of La Coruna, Spain. H&M, one of Zara’s top competitors, uses a slightly different strategy. Around one quarter of its stock is made up of fast-fashion items that are designed in-house and farmed out to independent factories. As at Zara, these items move quickly through the stores and are replaced often by fresh designs.
But H&M also keeps a large inventory of basic, everyday items sourced from cheap Asian factories. lnditex CEO Pablo Isla believes in cutting expenses wherever and whenever possible. Zara spends just 0. 3% of sales on ads, making the 3-4% typically spent by rivals seem excessive in comparison. Isla disdains markdowns and sales as well. Few can criticize the results of Isla’s frugality. Inditex recently opened 439 stores in a single year and was simultaneously named Retailer of the Year during the World Retailer Congress meeting, after raking in net profits of almost $2 billion.
Perhaps most important in an industry based on image, Inditex secured bragging rights as Europe’s largest fashion retailer by overtaking H&M. According to Jose Castellano, lnditex’s deputy chairman, the group plans to double in size in the coming years while making sales of more than $15 billion. He envisions most of this growth taking place in Europe—especially in trend-savvy Italy. Fashion of the Moment Although Inditex’s dominance of fast fashion seems virtually complete, it isn’t without its challenges. For instance, keeping production so close to home becomes difficult when an ncreasing number of Zara stores are far-flung across the globe. “The efficiency of the supply chain is coming under more pressure the farther abroad they go’,’ notes Nirmalya Kumar, a professor at London Business Schoo1. Inditex plans to launch its Zara online store in the United States in 2011. There is every indication that it will do well. A Zara application for the iPhone has been downloaded by more prospective clients in the United States than in any other market, according to chief executive Pablo Isla—more than a million iPhone users in just three months.
In 2010 Zara rolled out its online store in six European countries and plans to progressively add the remaining countries where Zara operates. Analysts worry that lnditex’s rapid expansion may bring undue pressure to its business. The rising number of overseas stores, they warn, adds cost and complexity and is straining its operations. Inditex may no longer be able to manage everything from Spain. But Inditex isn’t worried. By closely managing costs, lnditex says its current logistics system can handle its growth until 2012. Jose Luis Nueno of IESE, a business school in Barcelona, agrees that Zara is here to stay.
Consumers have become more demanding and more arbitrary, he says—and fast fashion is better suited to these changes. But does Zara International have what it takes to succeed in the hypercompetitive world of fast fashion? Or is the company trying to expand too quickly?
1. In what ways are elements of the classical management and behavioral management approaches evident at Zara International? Specify exactly which elements are evident and how they are evident. 2. How can the systems theory and the theory of contingency thinking explain the success of some of Zara’s distinctive practices? List specific points as to how these theories are directly or indirectly related to Zara’s practices.
3. Zara’s CEO has asked your management consulting firm for advice on how the firm can make immediate improvements to stay ahead of competition. You must choose one of the consultants mentioned in Chapter 2 for this job (ex: Frederick Taylor, Max Weber, Mary Parker Follett). Which one/s would you assign to Zara, and why? Explain your option in detail by discussing exactly what points of the “consultant” from his/her well-known theories are applicable to Zara and how these may be applied to the company in modern day. . Discuss each of your suggested “improvements” for Zara in detail. (More specific information, examples).
5. Gather the latest information on competitive trends in the apparel industry, and on Zara’s latest actions and innovations. Then answer the following: a. Is the firm continuing to do well? What makes you say so? (List statistics of competition, reviews, etc. Cite sources. ) b. Is Zara adapting in ways needed to stay abreast of both its major competition and the pressures of a changing global economy? What makes you say so?